blogospheroid

As I had replied to Eliezer, investing in a deflationary world will be tilted towards capital that yields a regular stream of real dividends: actual goods, not money. That is, there will be fewer corporations that will be expected to give money as a yield and more consumer cooperatives that will yield goods and services. Farms that yield food, NG well and that yields NG, a power plant and get a yield of electricity and so on.

I sincerely doubt this will happen, but lets run with the scenario. In a totally deflationary world, more people try to hold bitcoins, I agree. The complementary effect is that the value of real goods, land and labour is reducing.

People earn to consume. The bitcoin rich, if they apply the Kelly criterion to their own portfolios, will diversify into whatever assets will provide them a regular real dividend. That is, farms yielding grain, orchard yielding fruit, NG wells yielding NG, wind farms yielding electricity. They will not be buying any investment for the purpose of money, but for the purpose of CONSUMPTION.

There lies the negative feedback that will stabilize any new currency as it conquers the world.